Bhishma Kumar Bhusal, a joint-secretary at the Home Ministry, who leads a six-member task force formed by the government to recommend measures to stop loan sharks from exploiting the vulnerable, says access to finance through proper channels must be prioritised in clusters where the economically-disadvantaged are at risk of financial crimes.

The government had formed the panel to recommend measures to curb usurious lending in Nepal. The task force submitted its report to the Home Minister on August 12.

The report includes measures that need to be adopted by government bodies and the political leadership to control illegal lending. After signing a five-point agreement with the government on September 17, the loan shark victims who were protesting at the Maitighar Mandala, returned home. Bhusal spoke to the Post’s Tika R Pradhan on the reach of loan sharks in Nepal and ways to curb the severe financial crimes related to them.

What is the history of loan sharking in Nepal? How did this malpractice spill over to affect the lives of thousands?

Increasing demand for loans has led to an increase in the interest charged on the principal. Loan sharks were present even during the Panchayat regime. There were members of certain communities such as Jimmuwals and Mukhiyas in the Tarai belt who would charge inflated interest rates. The lack of access to finance back then was the major contributor to the practice of taking loans at high interest rates from local moneylenders.

The malpractice gained momentum in the 1990s with the movement of the migrant force from Nepal to foreign shores. Consumerism also played a part with foreign returnees coming back with disposable income which gave rise to the overconsumption of material goods in the villages. Following in their footsteps, a large number of aspiring Nepalis sought to go abroad to earn money. Most had to take loans from moneylenders who would charge exorbitant interests. But that did not deter debtors from taking loans because they were safe in the knowledge that they would earn money abroad to pay back the loan along with the interest. The creditors made loans easily available because they were assured of good returns.

Gradually, the growth in demand for loans emboldened loan sharks to charge higher interests. Borrowers fell into the trap of loan sharks with malicious intentions who would lend money charging interest at least three times the principal amount. Most lenders kept the borrowers’ land as collateral by transferring ownership to avoid hassles if borrowers raised questions or sought legal help.

It has been reported that the lenders would not transfer the ownership of the land even after the borrowers had paid back their loans and interests.

If the land ownership has changed hands legally, what are the legal provisions for victims to reclaim their land after clearing their debts?

Getting land back used as collateral for a loan from a lender is difficult. There are very few lenders who have returned land taken as collateral to the debtors willingly once the debt is cleared.

There are no loopholes in the legal paperwork maintained by the loan sharks which means it is difficult to prove their duality in a court of law. They prepare dual documents—one to be shown in courts reflecting 10 percent interest rate and the other showing five percent interest per month [60 percent per year]. Besides the high interest rates, they use various coercive tactics to get their loans and interests back.

This malpractice cheated several of their houses and property, especially in the Tarai region. More and more people started to lose their shelters. They did not find any legal respite because the loan sharks had water-tight paperwork as evidence of transfer of ownership.

Loan sharks have created squatters in the hundreds in the last few decades in Nepal.

In some cases, borrowers have been forced to pay Rs1.5 million for a loan of Rs50,000-Rs60,000. During our investigation, we came across a case where a migrant worker took a loan of Rs70,000 and for 10 years, and he spent all his earnings on paying back the loan and the interest. He had more to pay back when he returned home. A widow was left destitute when she fell victim to loan sharking. She lost her house and property to the loan shark for a loan borrowed to buy 40 kg of rice.

In some cases, the debtors were exploited physically. Women, whose husbands went to foreign employment after taking loans, faced sexual violence from the lenders.

These anecdotes point toward social exploitation that has been going on for decades in Nepal. Only now have the stories of the victims surfaced.

Isn’t our faulty system responsible for this widespread malpractice?

Although easy access to finance has opened doors for taking loans through certified channels such as banks and financial institutions, it is still difficult for people from lower-income groups to get a loan.

In hilly areas, financial institutions accept barren land as collateral but in the Tarai plains, barren lands do not hold much value for financial institutions. That’s why those in need of money find themselves in the clutches of loan sharks.

The government has several financial schemes and programmes—including concessional loans—for the benefit of members of the lower-income group but a lack of awareness of such programmes among the beneficiaries has rendered these schemes useless.

Another major problem is that financial institutions do not make compromises on the repayment window they allow a debtor. Banks offer three-month instalment schemes but it is impossible for a farmer to pay back the loan on a quarterly basis, especially since their income comes only once a year after the harvest. It takes 15-18 months for a sugarcane farmer to sell their produce so how can he pay banks every three months?

Financial crimes are serious crimes and the police haven’t been able to control these in the villages. If the police can’t do their jobs properly, then what is the use of having police stations in villages? Likewise, if financial institutions cannot cater to the financial needs of those who are in need, what is the point of their presence in the villages?

So yes, our system has to take most of the blame for the plight of the loan sharking victims.

So what is the remedy?

It is the government’s prerogative to make provisions that are inclusive of the marginalised who have no access to financial institutions. Only introducing annual plans, policies and programmes targeted at select groups is not going to make a difference if there is no proper implementation. Financial institutions setting up their branches in the villages is one thing, but introducing tailor-made schemes and policies for the economically-lagging communities is different and this is what is needed.

The local government also must intervene and introduce revolving funds in the villages for borrowers. Access to such schemes will stop the needy from approaching loan sharks.

We can implement the Marginalised and Dalit Upliftment Fund as a revolving fund for the Dalits. The only thing we need is a working procedure and we are ready to assist the government if needed. We can make legal arrangements to return the lands captured illegally by usurers in the past.

But political commitment is also a must to resolve the issues of the poor. Party leaders must stop relying on loan sharks for donations during the elections and refrain from giving them election tickets.

We have also suggested the government make laws criminalising the malpractice of loan sharking as it does to other financial crimes such as cheque bounce. If we can do this most of the problems will be solved as this will give the victims access to the court. The state will then fight their cases.

How can the court punish them as criminal laws cannot have retroactive effect?

For this, we have suggested that all the documents prepared for loans so far must be registered at the local units like rural municipalities or municipalities. However, some victims say the loan sharks themselves are the elected representatives in local governments. So we have suggested that the deeds must be screened in the presence of police, local administration, and local authorities in the presence of the borrower. Forged documents must be sorted out then and there. The legal documents must then be presented at the local level to avoid fake documentation.

If a victim approaches the police with a complaint against a loan shark, they must not be turned away without being allowed to register a complaint even if they lack evidence. We have suggested tracing the income source of the loan sharks. That will unravel all their misdeeds.

What is the respite for those vulnerable to the traps of loan sharks?

We can save others from falling victims. Currently, the civil code says such financial transactions must be registered. Government can issue a special order to register such documents. We should first clear all the outstanding cases and then criminalise such cases in future by formulating a law. We have suggested ten different legal provisions to the government.

Loan sharking cases should first reach the mediators for mediation. If that doesn’t work, free legal aid should be provided to the victims.

If the government wants, a special legal provision could be made to annul the court’s order if the court’s decision leaves people homeless.

Our task force has talked about all the preventive measures to save farmers from the clutches of loan sharks besides making suggestions about punitive measures.